Feasibility and Attentions to Early Retirement System

An enterprise with a longer history would have more employees who are close to the retirement age. Some of those employees may have less improvement in skills, and be lack of energy. If they still occupy the positions, the successors will have fewer opportunities to practice. Under such circumstance, more and more enterprises are considering to establish the early retirement system.

In practice, the early retirement system generally includes 3 categories: (1) to terminate a labor contract by negotiation, and the enterprise would pay a compensation in a lump sum; (b) the employee quits the position, and does not have to work, the employer keeps the labor contract, pays a certain proportion of the employee’s monthly salary (e.g. 80%), and continue to pay social security and provident fund; and (3) the employee’s position is adjusted to an auxiliary role (e.g. a consultant).

In the case that a labor contract could be terminated by negotiation in accordance with Article 36 of the “Labor Contract Law”, or the employer has prescribes category (2) and (3) in its internal rules and regulations in accordance with Article 4 of the “Labor Contract Law”, the early retirement system is feasible.

However, before implementing the early retirement system, enterprises shall pay attention to the following issues:
First, it is recommended to prescribe the criteria of the relevant employees, such as the applied positions, age, and the methods to initiate the system and etc., in the relevant internal rules and regulations.

Second, from the perspective of rationality, it is recommended to let employees decide to retire in advance or not. In practice, the courts supported the employers who were state-owner companies, which just ordered employees to retire in advance. For example, Hu Yi Zhong Min San (Min) Zhong No.1275, and etc.. However, it should be noted that these courts made the judgments by applying the “Provisions on the Resettlement of Surplus Staff in State-Owned Enterprises” (Order No. 111 of the State Council). In view of this, for those foreign invested enterprises and private enterprises, it would be better to let employees decide.

Third, the salary of category (3) shall be appropriate. Because the employee’s position would be adjusted due to the early retirement system instead of the incompetent work as stipulated in Article 40 of the “Labor Contract Law”, if the employer adjusts the salary, then the relevant employee might have dispute. It is recommended to keep the salary standard. However, the salary could still be adjusted based on KPI of the later position.

Fourth, it is recommended to communicate with the employee and retain the relevant documents. The HR department shall assign the right staffs to communicate with the target employee friendly and sincerely. The staffs shall listen to the opinions of the target employee, and guide the employee to make an appropriate choice. In addition, the staffs shall retain the relevant documents, and supervise the signature of the employee on the relevant documents.